After a covid-fueled adrenaline rush, biotech is collapsing

Tthree years nobody had heard of BioNTech. Today, the German biotech company is a household name, with revenues of $19 billion last year. The business owes both luster and profit chiefly to the success of mrna covid-19 vaccine that she developed in partnership with Pfizer, an American pharmaceutical giant. Yet even the effective hit hasn’t made it immune to a downturn plaguing the biotech industry. On August 8, BioNTech reported that sales fell 40% in the second quarter, year over year, as fewer people are left unfired and unboosted. Its stock price fell nearly 9%.

The biotechnology industry is particularly vulnerable to the syndrome of slowing economic growth, rising inflation and rising interest rates. As with other tech startups, the rate hikes make promised earnings, most of which are far in the future, look less buoyant today. Unlike software companies, biotech companies need constant infusions of capital to develop their drugs, which takes a lot of time and money.

Until recently, this money was easy to exploit. Biotech startups raised $34 billion globally last year, double the 2020 figure. In the first six months of 2021, 61 of these companies launched initial public offerings (Initial Public Offerings) in America only. Since then, liquidity has become scarce. The first half of 2022 saw only 14 Americans Initial Public Offerings. None of the 24 startups that Silicon Valley Bank, a lender to tech companies, is expected to take public this year have made the leap. Funding for private biotech companies is also down. Banks are reluctant to lend to start-ups, whose fate is tied to treatments that may never materialize.

Many companies are laying off staff. This week, Atara and MacroGenics, two midsize public companies, announced big layoffs. An index of biotech companies listed on the Nasdaq New York Stock Exchange has fallen a quarter since its peak a year ago, further than the slide Nasdaq overall index (see graph). Valuations of unlisted companies are falling faster than ever, says Lain Anderson of LEK Consulting. Not everyone will make it.

As non-specialist investors are dragged into the retreat of the biotech pandemic boom, the most discerning are sharpening their pencils. Some companies suddenly seem cheap, especially those with proven treatments or drugs in late-stage trials. Venture capital firms have raised more than $100 billion to invest in life science companies over the past three years, notes Abingworth’s Tim Haines, a biotech-focused asset manager. They still have a lot of unspent “dry powder” to roll out.

Big pharma, in particular, might be interested in biotech startups with promising drug pipelines. The giants will see some $300 billion worth of patents expire by 2030, according to Haines. Pfizer has been particularly eager for acquisitions — and, thanks to the $37 billion it earned last year from sales of its covid vaccines and treatments, particularly flush. On August 8, it agreed to pay $5.4 billion to Global Blood Therapeutics, maker of a sickle cell treatment, bringing its total takeovers to more than $25 billion in the past 12 months. .

As for Pfizer’s covid-vaccine partner BioNTech, it’s still worth five times what it was worth before the pandemic, despite a 50% collapse in market capitalization since peaking a year ago. Do not take out the defibrillator right away.

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